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Brazil Telecom Competition to Heat up on Number Portability

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SAO PAULO (Dow Jones) Brazil telecommunication operators will see stiff competition get stiffer after the introduction of number portability earlier this week.

Main operators tend to lose business with portability but the true effect depends on the ability of the competition to handle new customers.

"The level of competition is already hurting the main wireless operators and this is just another factor," Luciana Leocadio, telecom analyst at the Ativa brokerage in Rio de Janeiro, said of number portability, which began Sept. 1. "The question is how well prepared are the smaller firms to meet new demand."

Beginning Monday, operators in eight regions in the interior of Brazil must let customers take numbers with them when they switch operators with a minimum of bureaucracy, mirroring rules already in place in many parts of the world.

Anatel, the Brazilian telecoms regulator, hopes to introduce number portability nationwide by March.

The most obvious potential winners are the two smaller fixed-line operators, Net Servicos de Comunicacao and GVT Holding, which have smaller bases to lose.

"Following the logic seen elsewhere, the impact will be more profound on the fixed-line market and these smaller companies should attract customers from major incumbents," said Jacqueline Lison, telecom analyst at Fator brokerage in Sao Paulo.

Major fixed-line operators include Telecommunicacoes de Sao Paulo, or Telesp, which is owned by Spain's Telefonica and Brasil Telecom Participacoes.

Customers tend to have had fixed lines for longer than mobile lines, and there is a larger portion of the population attached to these numbers.

The new rules will particularly benefit Net, which offers domestic triple play services based on its cable TV and broadband Internet services.

"Its triple play option becomes more attractive, if you can bring your telephone number with you," said Ativa's Leocadio.

Meanwhile, GVT offers fixed-line services in the south of the country, facing Brasil Telecom Participacoes, which dominates the market there. "For fixed-line services, price will be a determining factor in how much market it picks up," said Lison.

Meanwhile, portability will further heat the already intense competition in the mobile phone market.

"Operators will have to spend more on keeping hold of clients as churn levels increase," said Leocadio.

Major fixed-line operators such as Vivo Participacoes and TIM Participacoes have recorded diminishing margins and disintegrating results this year amid increased marketing and promotional costs.

Most markets have four operators, which is more than in most developed markets and creates hostile market conditions, notes Leocadio.

If one company will gain in the mobile phone segment, it will likely be Tele Norte Leste Participacoes, or Oi, which is preparing to expand its cellular services in Sao Paulo, Brazil's biggest market.

The company, Brazil's largest telecom, already uses marketing that tries to lure investors from other operators and these new rules dovetail perfectly with that strategy.

Meanwhile, mobile phone clients who want to hold on to lines will tend to be heavier users.

"Quality is more important to these clients and the companies who have invested more in this will benefit," said Lison.

This will necessitate more investment in networks and services.

-By Alastair Stewart; Dow Jones Newswires; 5511 2847-4520; alastair.stewart@dowjones.com

(END) Dow Jones Newswires

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